BAICO: Letter to Plan Members – May 20th 2011

BRITISH-AMERICAN INSURANCE COMPANY LIMITED

(In Judicial Management)

P.O. Box N-123
Montague Sterling Centre
East Bay Street Nassau, Bahamas

Tel: 242-393-2007
Fax:242-393-1772

20 May 2011

Dear BAICO Pension Plan participant

Re: British-American Insurance Company Limited Employee Pension Plan (the “Plan“)

You are receiving this letter as the management of British-American Insurance Company Limited (“BAICO”) in your location have identified that you may be a participant of the Plan. I am writing to you as Judicial Manager (“JM”) of BAICO appointed by the Supreme Court of The Commonwealth of The Bahamas (“the Bahamian Court”).

Key findings of the investigation into the Plan

Further to my previous letter dated 28 December 2009, I have now completed my investigation into the Plan. The key conclusions from my investigation were as follows:

1) The Plan is manifestly insolvent. As at 31 December 2009, the estimated realizable value of the assets allocated to the Plan by former management of BAICO were approximately US$1.6 million and the actuarially estimated pension liabilities are estimated to be between US$19.5 million to US$23.2 million, giving the Plan a financial shortfall of between US$1 7.9 million and US$21.6 million;

2) The former management of BAICO did not segregate pension contributions into separately identifiable accounts outside of BAICO’s operating bank accounts, nor do the pensions contributions made remain identifiable within these accounts. As a result, the Plan Participants (“the Participants”) are unlikely to be able to establish a proprietary interest in BAICO’s assets either in respect of contributions from their own salary deductions, or over other contributions that ought to have been paid by BAICO; and

3) Certain specific assets informally allocated to the Plan by former management of BAICO, with an estimated total value of $1.6 million, are likely to be deemed to be held in trust for the Participants.

The Order of the Bahamian Court

After accepting my findings and recommendations from my investigation into the Plan, the Bahamian Court issued an order on 13 April 2011 (the “Order”) in respect of the Plan, a copy of which is enclosed.

In summary, the Order requires that:

a) I take the necessary steps to terminate the Plan with effect from 8 September This means simply that deductions will no longer be made to Participants’ salaries in respect of the Plan (see paragraph 1 of the Order);

b) Pension contributions made by Participants after 8 September 2009 be refunded (see paragraph 2 of the Order). For Participants based in jurisdictions where a judicial manager or other court appointee was appointed over BAICO’s branch operations prior to the JM ‘s appointment, all contributions received from the date of their appointment be refunded;

c) Pension payments from the assets of BAICO to pensioners will not continue (see paragraph 3 of the Order);

d) I continue to explore the inclusion of the pension obligations of BAICO in the reorganization and restructuring options presently being explored by the governments of the Eastern Caribbean and other jurisdictions (see paragraph 6 of the Order).

At numbered paragraph 2 above, I explained that the Participants are unlikely to be able to establish a proprietary interest in BAICO’s assets either in respect of contributions from their own salary deductions, or over other contributions that ought to have been paid by BAICO. Although this is my view having taken legal advice on the issue, this is an issue that will need to be determined by the Bahamian Court. In recognition of the importance of this issue, the Bahamian Court accepted my recommendation that Participants should have a right to be heard at the hearing of this issue. However, the Bahamian Court also ordered that the determination of this issue be reserved until after a winding up order is made in respect of BAICO (see paragraph 5 of the Order).

At numbered paragraph 3 above, I explained that that certain specific assets informally allocated to the Plan by former management of BAICO, with an estimated total value of $1.6 million, are likely to be deemed to be held in trust for the Participants. Again, this view was formed on taking legal advice on the question.

The question of whether these assets are in fact held on trust for the Participants has yet to be determined by the Bahamian Court. The Bahamian Court has however given me permission to attempt to take control of these assets pending determination of the issue (see paragraph 4 of the Order).

Notice to Participants

Accordingly, I am writing to you to inform you that:

The Plan has been terminated with effect from 8 September 2009.

I have requested that the judicial managers and other court appointees at your local BAICO branch or subsidiary write to you to inform you of the details of the pension contributions that will be refunded to you as explained above, and the steps you need to take to collect your refund;

In the event you are a pensioner, any ongoing payments from the assets of BAICO, will now cease. In most cases I understand from the judicial managers and/or court appointees in your jurisdiction, that pension payments ceased at the time of their appointment. In this case, such payments will not be continued.

If you have any questions please do not hesitate to contact either David Jenkin or myself on 242-394-9971 or 242-352-9384 respectively.

Yours sincerely

British-American Insurance Company Limited

J.M. Lopez
Judicial Manager

Note: The affairs, business and management of British–American Insurance Company Limited are under the control of the Judicial Manager pursuant to an Order of the Supreme Court of The Commonwealth of The Bahamas dated 8th September, 2009.